In response to Russia’s invasion of Ukraine, both the European Union and the United States are considering a ban on imports of Russian crude oil.
In the United States, the import ban has support across party lines, and Democratic senators, along with Republican senators, have launched a bill to implement the import ban.
Foreign minister Antony Blinken confirmed over the weekend that the United States is negotiating with its allies to abandon Russian oil.
President Joe Biden is expected to announce later today the U.S. decision to stop using Russian crude oil.
The European Union is also preparing to give up Russian oil. The European Commission today announced its intention to divest two-thirds of its gas imports from Russia this year.
– We must be independent of Russian oil, coal and gas. We cannot be dependent on a journalist who threatens us directly, President of the Commission Ursula Von Der Leyen said.
The Commission added that its plan is to phase out Russian gas completely by 2030.
However, there are concerns about the consequences of the decision. One third of the crude oil used by EU countries comes from Russia, and such a large amount cannot be replaced in an instant.
“At the moment, Europe cannot be heated and its energy supply to transport, electricity and industry cannot be secured in any other way (except with energy imported from Russia),” Scholz said.
A substitute is being sought for Russian oil
Oil production is controlled by the Opec cartel, which includes the largest oil-producing countries. Opec decides how much oil is produced for the world market.
When considering Russia’s abandonment of oil, the question is, of course, where to get oil to replace it.
Russia produces 4.5 million barrels of crude oil and 2.5 million barrels of refined oil a day.
Opec does not have an immediate medicine to make up for this amount.
Even before the Russian invasion of Ukraine, Opec had difficulty producing enough crude oil for the market, which pushed up the price of oil.
“Europe can replace oil imported from Russia, but it will not happen in an instant,” says Russia’s professor of environmental policy. Brother-Pekka Tynkkynen From the Alexander Institute of the University of Helsinki.
According to Tynkkynen, there are many ways, at least in theory.
The International Energy Agency (IEA) has already announced that it will release 60 million barrels of its strategic stockpiles to the market.
In addition to this, significant untapped oil reserves can also be found in Venezuela, with which the United States recently announced negotiations.
– Saudi Arabia would be able to increase its production, but so far it has not agreed to it, Tynkkynen says.
However, he believes Saudi Arabia, which is dependent on oil revenues, will reassess the matter if it finds that Western countries are accelerating oil abandonment altogether as a result of Russia’s actions.
An oil ban would be a severe blow to Russia
Crude oil exports are a significant source of income for Russia.
Crude oil accounts for almost a third of Russia’s total exports, and if refined petroleum products are added to this, almost half of all Russian exports are already mentioned.
In 2019, Russia’s crude oil exports were worth $ 123 billion, or € 112 billion. Together with refined petroleum and natural gas, the amount rises to $ 216 billion, or just under € 200 billion.
The largest single country importing Russian crude oil is China, but two-thirds of Russia’s oil is exported to Europe, according to Tynkkynen.
Only about three percent of the crude oil imported by the United States is Russian. The impact of the European import ban on Russian oil exports would therefore be very great.
– Of course, Russia would find new customers outside the West, but it will not be easy for it to transport oil not bought by the West elsewhere, Tynkkynen estimates.
According to him, Russia should transport oil by sea far from its vicinity, which would increase transportation costs and reduce Russia’s profits.
In addition, sanctions imposed by the West would affect insurance prices for oil tankers and raise this already high cost item.
And what would happen to the funds that Russia would receive from the oil it sells to non-Western countries?
– When the West imposed sanctions on Iran, it continued to sell oil, but was unable to transfer its oil revenues to Iran due to economic sanctions, Tynkkynen says.
The same could be the case in Russia.
– In addition, the sanctions will make it more difficult for Russia to enter the financial markets and will not be able to make investments to convert oil logistics to serve non-Western countries, he predicts.
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A ban on oil imports would also affect the market price of crude oil, and in fact is already affecting it because the market anticipates it.
The price of oil is already approaching $ 140 a barrel, close to record levels. A Finnish consumer can even tell this by visiting a gas station, as the price of petrol is at its peak.
– It is clear that when Europe breaks its dependence on Russian oil and gas, this will be reflected in the consumer’s wallet, Tynkkynen says.
He believes that the European Union should respond to this with joint action, such as tax solutions or a buffer fund to support consumers.
“The EU must understand and use energy as a weapon of war,” he said.
In addition, the Commission said it was considering temporary price caps to keep energy and electricity prices under control.
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In terms of gas, Europe is even more dependent on Russia for its oil, with 40% of the gas it uses coming from Russia.
Gas heats almost half of European households and is an energy source for much of European industry.
Russia has already threatened to cut off gas supplies to Europe if it imposes import restrictions on the oil it produces.
According to Tynkkysen, who specializes in researching Russia’s energy policy, this is an attempt to intimidate Europe.
– If Russia stops supplying gas to Europe, it will not have the capacity to export this gas elsewhere, he says.
Most of Russia’s gas pipelines go to Europe, and Russia cannot switch to transporting all this volume in liquid LNG form by sea because the capacity of its LNG ports is not so great, Tynkkynen reminds.
Europe is able to reduce its dependence on Russian gas
For example, Europe can buy imported liquefied petroleum gas, or increase the use of nuclear power or even environmentally harmful coal.
Von Der Leyen, President of the Commission according to (you switch to another service) The range of measures also includes increasing the energy efficiency of houses and additional investments in renewable energy.
The Commission also intends to require Member States to fill their underground gas reserves to at least 90% of their capacity by 1 October each year.
– Even if all available means were used for gas in the short term, Europe would still need about a third of the gas it imports from Russia, Tynkkynen estimates.
In addition, the issue is complicated by multi-year agreements between European companies to buy Russian gas.
– We would be able to do it in a few months if we stopped using Russian gas completely, he predicts.